Before you sign that
commercial lease.

By Jonathan Kleiman, Barrister & Solicitor · Published June 2026

Here is the single most important thing to understand before you sign space for your business: a commercial lease is nothing like the residential lease you signed for your apartment. When you rent a home in Ontario, the Residential Tenancies Act stands behind you — rent control, security of tenure, a tribunal that strikes out unfair terms. Commercial tenants get none of that. The Commercial Tenancies Act applies instead, and it gives tenants very few statutory protections, largely leaving the parties to set their own terms. There is no rent control and no standard form.

What that means in practice is blunt: the lease document is the law between you and your landlord. Whatever it says, that is what governs — and these documents are drafted by the landlord, for the landlord. I have read leases where a clause buried on page nineteen could have ended a client’s tenancy on six months’ notice, and the tenant had no idea it was there. Nobody was going to point it out. That is why a careful review before signing is one of the highest-value things a small business can do.

This is the checklist I work through when a client sends me a lease or an offer to lease for review. Go clause by clause. Almost everything below is negotiable before you sign and almost nothing is afterward, so the time to slow down is now — not after the ink is dry.

Why commercial leases play by their own rules

Start by throwing out your residential instincts. The Commercial Tenancies Act (you can read the official version on the Ontario government site) does set some ground rules, but it is widely understood to favour landlords, and it deliberately leaves most terms to the contract. There is no body policing fairness, no cap on rent increases, and no template everyone uses. Two leases for two units in the same plaza can read completely differently.

The upshot: every protection you want has to be written into the lease, and every risk you want to avoid has to be negotiated out of it. Do not assume the law has your back, because for the most part it does not.

1. The parties — and who actually signs (the personal guarantee)

First, check who the tenant is. If you have incorporated, the tenant should be your corporation, not you personally — that is the whole point of running the business through a company. If you are still a sole proprietor, this is a moment to ask whether you should structure the business differently before taking on a multi-year obligation.

Then look for the clause that quietly undoes your corporation: the personal guarantee (sometimes called an indemnity). This makes you, the owner, personally liable for the lease even though the tenant is your incorporated company. If the business fails, the landlord can come after your house, your savings, your personal credit — for years of remaining rent. It defeats the limited-liability protection you incorporated to get. To my mind this is the single most consequential term in most small business leases, and the one tenants understand least.

Can I negotiate the personal guarantee?

Often, yes. Landlords ask for guarantees routinely, especially from newer companies without a track record, but a guarantee is rarely take-it-or-leave-it. You can try to cap it at a dollar figure, time-limit it (say, the first two years), or negotiate a “good-guy” or burn-off guarantee that falls away once you have paid reliably for a defined period or that limits your exposure if you give proper notice and hand back the space in good order. A guarantee you cannot escape is a very different risk from one that burns off after twenty-four months of clean payment. Never sign one without knowing exactly how much you are on the hook for, and for how long.

2. The premises — and rentable vs. usable area

Read the description of the premises closely, and pay attention to square footage. There is a difference between usable area (the space you actually occupy) and rentable area (your space plus a share of common areas — lobbies, corridors, washrooms). Rent and your TMI share are usually calculated on rentable area, which is larger. A lease that quietly uses a generous “gross-up” factor can have you paying for more square footage than you can stand in. Confirm what is being measured, and how, before you accept a per-square-foot number.

3. The term, and renewal or extension options

Check the term — when it starts, when it ends, and whether the start is tied to the landlord delivering the space or completing work. Then look for a renewal or extension option. A right to renew, at a defined or fair-market rent, is valuable: it lets you stay in a location you have built a customer base around without the landlord holding you hostage at renewal time. The opposite — a lease with no renewal right — means you may have to leave (or pay whatever the landlord demands) the day the term ends. For any location-dependent business, a renewal option is worth fighting for.

4. Base rent and escalations

Base rent is the headline number, usually quoted per square foot per year. Look for how it escalates over the term — most leases step the base rent up each year or each renewal period, either by a fixed percentage, a set schedule, or an index. Make sure you can live with the rent in the final year, not just the first. A rate that looks comfortable today can be a different story five years in.

5. Additional rent / TMI — and net vs. gross leases

This is where tenants get the nastiest surprises. Most Ontario commercial leases are net leases: on top of base rent, you pay your proportionate share of the building’s operating costs as additional rent, commonly called TMI — Taxes (realty taxes), Maintenance (common-area and operating costs), and Insurance (the building’s coverage). A gross lease, by contrast, bundles those costs into one rent figure so you pay a single all-in amount.

TMI is not a rounding error. It can be a large amount — in some buildings it approaches or even exceeds the base rent. I have seen tenants sign because the base rent looked affordable, only to discover their true occupancy cost was nearly double once TMI landed. Before you sign, get the current TMI in dollars per square foot in writing, ask what it has done over the past few years, and watch for clauses that let the landlord pour capital expenses or management fees into the operating-cost pool you pay into.

How do I avoid a nasty TMI surprise?

Ask three questions before signing. First, what is the current TMI per square foot? Second, what is included — are major capital repairs, structural work, or a fat management fee being passed through to tenants? Third, is there a cap on year-over-year increases in the controllable portion? You will not get everything, but knowing the real all-in number — base rent plus TMI plus HST — is the difference between a budget that holds and one that blows up in year two.

6. The use clause and exclusivity

The use clause defines what you are permitted to do in the space. Make sure it is broad enough to cover not just what you do today but where you might take the business. A use clause limited to “a coffee shop” can stop you from later selling sandwiches or franchising the concept. If you are in retail or food, also ask about an exclusivity clause — a promise that the landlord will not lease nearby space to a direct competitor. In a plaza or mall, exclusivity can be the difference between a viable location and a crowded one.

7. Repair, maintenance, and HVAC obligations

Net leases push a lot of upkeep onto the tenant — and the costliest item is usually the HVAC (heating, ventilation, and air conditioning) unit serving your space. Read carefully who is responsible for maintaining, repairing, and replacing it. A clause that makes you replace a rooftop unit at the end of its life can mean a five-figure bill out of nowhere. The same goes for the definition of structural repairs versus tenant repairs. You want the landlord on the hook for the roof, structure, and base building systems, and clear limits on what falls to you. If the unit is already old, negotiate a cap on your replacement exposure or a fresh unit as a condition of signing.

8. Assignment and subletting

If you remember one thing from this checklist beyond the guarantee, make it this: assignment and subletting rights matter enormously for selling your business later. When you eventually sell, the buyer almost always needs your location, which means taking over your lease by assignment. If your lease bars assignment, or lets the landlord refuse consent for any reason at all, the landlord effectively holds a veto over your sale — and can use it to extract a higher rent, a transfer fee, or a new guarantee from the buyer as the price of saying yes.

The language you want is that the landlord’s consent to an assignment or sublet will not be unreasonably withheld or delayed. Watch also for a recapture right — a clause letting the landlord simply take the space back instead of consenting to your assignment, which can gut the value of the deal you negotiated. This is a clause to get right at signing, because it quietly protects the resale value of everything you are about to build.

9. Demolition and relocation clauses

A demolition clause lets the landlord end your tenancy on notice if it decides to demolish or substantially redevelop the building. A relocation clause is its cousin — it lets the landlord move you to different space. For a business whose value is tied to its location, these are among the most dangerous clauses in the lease, because they can force you out regardless of how well you are doing. If a lease contains one, do not just accept it. Push for a long notice period, a meaningful compensation payment (including for your leasehold improvements and moving costs), and tight limits on when and how the right can be exercised — or try to strike it entirely.

10. Insurance and indemnity

Commercial leases require the tenant to carry specified insurance — commercial general liability at a stated minimum, property and content coverage, often business-interruption coverage, with the landlord named as an additional insured. Confirm the requirements match what your broker can actually provide and budget for. Right beside the insurance covenants you will find the indemnity: a promise that you will cover the landlord for claims connected to your occupancy. Read how broad it is. An overly sweeping indemnity can make you responsible for things well beyond your fault, so it deserves a close read alongside the rest of your contract review.

11. Restoration and “make-good” at the end of term

Look ahead to move-out day now. Many leases require the tenant to restore the premises to base-building condition — to “make good” — at the end of the term, which can mean ripping out the very improvements you paid to install and handing back an empty shell. That can be a substantial, unbudgeted cost at exactly the moment you are leaving. Negotiate clarity: which improvements you must remove, which you can leave, and whether normal wear and tear is excused. The time to limit a make-good obligation is at signing, not when the landlord hands you the bill on the way out.

12. Default, distress, and the landlord’s remedies

Read the default section knowing the landlord starts from a position of strength. Under the Commercial Tenancies Act, an Ontario landlord has remedies that are far faster and harsher than anything in residential law. Two stand out. The first is the right of distress: the landlord can seize and sell your goods on the premises to recover rent arrears. The second is the right to terminate and re-enter — to end the lease and change the locks — often without a court order. These remedies can be exercised quickly, which is why falling behind on commercial rent is so much more dangerous than falling behind on a home.

When you review the default clause, check what counts as a default, whether you get notice and a cure period before the landlord can act, and how non-rent defaults (like an insurance lapse) are handled. A reasonable notice-and-cure provision is worth negotiating for, because it gives you a chance to fix a slip before the landlord reaches for its strongest tools.

13. Deposits

Commercial leases commonly require a deposit — often first and last months’ rent (on a gross basis, meaning base rent plus TMI), sometimes more for a new business. Unlike residential law, there is no statutory scheme protecting commercial deposits, so the lease terms govern entirely. Check how the deposit is applied, whether it earns interest, and on what conditions it is returned. Make sure the lease says plainly that the deposit is credited against rent (or refunded) rather than quietly forfeited.

14. Estoppel and subordination

Two clauses tenants skim past but should understand. An estoppel certificate requirement means that, on request (usually when the landlord is selling or refinancing), you must sign a statement confirming the lease details and that the landlord is not in default — so you cannot later claim otherwise. A subordination clause makes your lease rank behind the landlord’s mortgage financing. Pair subordination with a request for non-disturbance — a promise that if the lender ever takes over the building, it will honour your lease rather than terminate it. Without non-disturbance, a lender enforcing on the landlord could, in theory, end your tenancy.

15. The offer to lease — binding before you reach the “real” lease

One trap deserves its own heading because it catches careful people. The deal usually starts with an offer to lease, and many tenants treat it as a non-binding negotiating step. It often is not. An offer to lease can be a binding contract that commits you to enter the formal lease on the agreed terms — rent, TMI, guarantee, allowances and all. The major business points are typically settled at the offer stage, which makes the offer to lease exactly the document you should have reviewed before signing, not an afterthought. Do not sign one assuming you can walk away or renegotiate later.

How to review a lease — a step-by-step process

When a client hands me a lease, here is the order I work through it — and one you can follow yourself for a first pass:

1. Read the offer to lease first. The business deal lives here, and it may already be binding.
2. Confirm the parties and hunt for the guarantee. Is the tenant your corporation? Is there a personal guarantee, and can it be capped or time-limited?
3. Pin down the money. Base rent, the escalation schedule, and — critically — the current TMI in dollars per square foot. Add it up to a real all-in number.
4. Check the term and renewal. When does it end, and can you stay?
5. Test your exits. Assignment, subletting, and any early-termination right — can you sell or get out?
6. Find the landlord’s escape hatches. Demolition, relocation, and recapture clauses.
7. Map the obligations. Repairs, HVAC, insurance, indemnity, and the make-good at the end.
8. Read the default and remedies section. Distress, re-entry, and whether you get notice and a chance to cure.

Do a pass like this and you will already know the questions to raise. A lawyer’s review then catches the wording that a first read misses — and translates “that sounds fine” into “here is what that actually does to you.”

A few real-world examples

To make this concrete, a handful of patterns I see again and again:

• The affordable rent that wasn’t. A tenant signs at a base rent that fits the budget, then learns TMI nearly doubles the real cost. The number to negotiate around is always base rent plus TMI, not base rent alone.
• The guarantee that outlived the business. The company closes, but the owner had signed an uncapped personal guarantee and spends the next two years personally liable for rent on space they no longer use.
• The sale that stalled. A profitable shop goes to sell, only to find the lease bars assignment without unfettered landlord consent — and the landlord uses that leverage to rewrite the deal.
• The demolition clause nobody flagged. A growing restaurant gets six months’ notice to vacate because the landlord redevelops, with no compensation for the build-out the tenant paid for.

Every one of these was avoidable — at the review stage, before signing, when the terms were still on the table.

Common mistakes small business tenants make

• Treating it like a residential lease. Assuming the law will protect you. It mostly will not.
• Signing the offer to lease without review. Thinking it is non-binding when it commits you to the deal.
• Budgeting on base rent alone. Ignoring TMI, HST, and the all-in occupancy cost.
• Signing an open-ended personal guarantee. Giving away the limited liability you incorporated to get.
• Ignoring assignment rights. Not realizing a weak assignment clause can block the future sale of the business.
• Overlooking the landlord’s exit clauses. Missing demolition, relocation, or recapture rights.
• Forgetting the end of the term. Not budgeting for restoration or make-good costs.

Key takeaways

• The lease is the rulebook. Commercial tenancies are not covered by the Residential Tenancies Act — the Commercial Tenancies Act gives few protections, so whatever the document says is what governs.
• The personal guarantee is the clause to scrutinize. It makes you personally liable despite incorporating; negotiate a cap, a time limit, or a burn-off.
• TMI is real money. Most leases are net leases — get the current TMI per square foot and budget on base rent plus TMI, not base rent alone.
• Protect your exits. Assignment, subletting, and early-termination rights determine whether you can ever sell or leave; watch for demolition and relocation clauses on the landlord’s side.
• Negotiate before you sign. Almost everything is on the table before signing and almost nothing after — and an offer to lease may already be binding.

Frequently asked questions

Is a commercial lease different from a residential lease in Ontario?

Very different. Residential tenancies are governed by the Residential Tenancies Act, which gives tenants strong protections — rent control, security of tenure, and a tribunal that polices unfair terms. Commercial tenancies are not covered by that Act. The Commercial Tenancies Act applies instead, and it gives tenants very few statutory protections, letting the parties set their own terms. There is no rent control and no standard form. The practical result is that the lease document itself is the rulebook, so whatever you sign is largely what you get.

What is additional rent or TMI in a commercial lease?

TMI stands for taxes, maintenance, and insurance — the building costs the tenant pays on top of base rent. In most Ontario commercial leases the tenant pays its proportionate share of realty taxes, common-area maintenance and operating costs, and the building insurance. These are billed as additional rent. TMI can be a large number, sometimes approaching or even exceeding the base rent itself, so a quoted base rent that looks affordable can hide a much larger total occupancy cost. Always ask for the current TMI figure in dollars per square foot before you sign.

What is a net versus gross lease?

In a net lease the tenant pays a base rent plus its share of the building operating costs — the TMI — as additional rent, so the landlord nets the base rent. Most Ontario commercial leases are net leases. In a gross lease those operating costs are bundled into a single rent figure, so the tenant pays one all-in amount and the landlord absorbs the cost fluctuations. Gross leases are simpler and more predictable for budgeting, but rarer. The label matters less than knowing exactly which costs you are responsible for, so read the additional-rent definitions carefully.

Should I sign a personal guarantee on a commercial lease?

Be cautious. A personal guarantee or indemnity makes you personally liable for the lease even though your business is incorporated, which defeats the limited-liability protection of the corporation. If the business fails, the landlord can pursue your personal assets for the remaining rent. Landlords often ask for one, especially from newer companies, but it is frequently negotiable. You can try to cap the dollar amount, limit it to a fixed number of months, or use a burn-off or good-guy guarantee that ends once you have paid reliably for a period. Never sign one without understanding the full exposure.

Can I get out of a commercial lease early in Ontario?

Usually not easily. A commercial lease is a binding contract for the full term, and there is no statutory right to break it early the way there can be in residential law. If you simply leave, you generally remain liable for the rent for the rest of the term, subject to the landlord taking reasonable steps to re-let. Your realistic exits are negotiating a surrender with the landlord (often for a payment), assigning the lease or subletting to someone who takes over the space, or exercising an early-termination right if one was built into the lease. Plan exits before you sign, not after.

Can I sell my business if my lease has no assignment rights?

It becomes much harder. When you sell a business, the buyer almost always needs the location, which means taking over the lease by assignment. If your lease bars assignment, or lets the landlord refuse for any reason, the landlord effectively holds a veto over your sale and can demand concessions — a higher rent, a fee, or a fresh guarantee from the buyer — as the price of consent. The clause you want allows assignment with the landlord’s consent not to be unreasonably withheld. Negotiating that before you sign protects the resale value of your business years later.

What is a demolition clause in a commercial lease?

A demolition clause lets the landlord end your tenancy, on notice, if it intends to demolish or substantially redevelop the building. A relocation clause is similar but lets the landlord move you to different space. For a business that depends on its specific location — a restaurant, a retail shop, a clinic with a loyal local clientele — these clauses are a serious risk, because they can force you to leave or move regardless of how well you are doing. If a lease contains one, push for a long notice period, a compensation payment, and limits on how and when it can be used.

Do I need a lawyer to review a commercial lease?

You are not legally required to, but it is one of the best-value reviews a small business can buy. Commercial leases are long, landlord-drafted documents with few statutory protections, and the cost of a problem clause — an uncapped guarantee, a demolition right, a blocked assignment — dwarfs the cost of a review. A lawyer reads the lease against how your business will actually operate, flags the traps, and tells you what is negotiable while you still have leverage, which is before signing. The total commitment over a multi-year term is usually well into six figures, so a few hours of review is cheap insurance.

Is an offer to lease binding in Ontario?

It can be. An offer to lease is often treated as a negotiating step, but once signed it is frequently a binding contract that commits you to enter the formal lease on the agreed terms. Many disputes start because a tenant signed an offer to lease thinking it was non-binding and only later discovered they were locked in. The key business terms — rent, term, TMI, guarantee, allowances — are usually settled at the offer stage, so it is precisely the document you should have reviewed before you sign, not the formal lease that follows. Treat an offer to lease with the same care as the lease itself.

What happens if I can’t pay the rent in a commercial lease?

The landlord’s remedies under the Commercial Tenancies Act are strong and fast. The landlord can exercise the right of distress — seizing and selling your goods on the premises to cover rent arrears — or terminate the lease and re-enter the premises, often without going to court first. These remedies are far more aggressive than anything available against a residential landlord, and they can happen quickly. If you fall behind, talk to the landlord early about a payment arrangement, and get legal advice before the landlord acts, because once goods are seized or the locks are changed your options narrow sharply.

Final thoughts

A commercial lease is one of the largest contracts a small business ever signs — the total over a five- or ten-year term usually runs well into six figures — yet it is also one of the most lopsided, drafted to protect the landlord and offering you almost no statutory safety net. That combination is exactly why a careful review pays for itself many times over. The leverage to fix a clause exists only before you sign; afterward, you live with what is on the page.

If you are looking at a lease or an offer to lease, having a commercial lease lawyer read it against how your business actually operates is one of the cheapest forms of insurance you can buy. I do this work for Ontario small businesses regularly, and I also act on the landlord side, which means I know where both parties push. For the bigger picture of legal support a growing company needs, our business lawyer page lays out how it fits together. Call 416-554-1639 or book a free consultation before you sign — not after.